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Australia Kate's home sale is not an isolated case, explains Chinese buyers dilemma in Australia

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Famous Australian actress Cate Blanchett wants to sell her waterfront mansion in Sydney, and a buyer from China is also keen to buy the property, but that's where the trouble starts.

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Cate Blanchett

According to The Australian Financial Review, the transfer of money from China to offshore proved impossible, and the A$20 million property sold for far more than the $50,000 (A$66,800) limit. Chinese buyers are allowed to transfer $50,000 per year out of the country due to controls on capital outflows. According to real estate agents who handled the transaction, the inability of potential buyers to resolve their financial problems has led to Australian real estate deals to have fallen through amounting to dozens of failed deals. The Chinese buyers are responsible for the unprecedented boom in overseas property purchases, but the case of Blanchett shows that such capital flows have been met with opposition in terms of the policy.

The opposition is not only from China but also from overseas countries. Now in Australia, a developed country with extensive ties to China, such opposition is more apparent. Chinese officials are tightening restrictions on capital outflows, while in Australia, many of the stricter policies on foreigner lending restrictions are having an impact on the Australian housing market.

This is all to the delight of the RBA, who are desperate to weaken the trend of rising property prices. Lulu Pallier from Sotheby's International Sydney, who specialises in high-end Chinese buyers said, "It was difficult for them to transfer money out of China and then they found it difficult to get a loan and the deal struck."China's officials are concerned that capital outflows will exacerbate the yuan's depreciation and could be a driving force behind its continued depreciation. Capital Economics, a global economic research firm, estimates that China's capital outflows in October amounted to $73 billion capital (A$97.63 billion) has again contributed to the slowdown since the middle of the year. As of September of this year, according to estimates by Bloomberg Intelligence, China's outflows amounted to $620 billion. China's banks have been told to take a critical look at the loopholes through which individuals evade capital controls. China officials have also banned quotas of common currency brought out by friends or relatives, curbed cross-border activities of underground banks, and require loan institutions to reduce foreign exchange sales.

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In Australia's largest city, house prices have climbed by more than 50% since 2008, partly due to Chinese investors.

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But there are still plenty of alternative financial outlets for buyers who are determined to buy property abroad. Business owners can finance their home purchases through offshore trading companies, while some Chinese developers allow clients to pay RMB for overseas properties purchases.

But buyers who have managed to move their money from China to Australia also face a high degree of restrictions in Australia. Last year, the government forced China's Evergrande Real Estate Group to sell the company's $39 million Sydney mansion. This is one of the most high-profile crackdown cases on illegal foreigners who buy the property.

This year, Australia's big four banks and Citigroup said they would no longer approve customers’ mortgage applications settled in yuan and four other Asian currencies, in Australia. Westpac, for its part, has said it wants to support Australians and permanent residents to buy homes.

Because of this, alternatives to local financing are emerging. Australian billionaire and developer Harry Triguboff, according to Meriton Group 's message, doubled loans to condo buyers, especially those affected by China's tightening policies. In its October financial stability review, the RBA highlighted that the failure of homebuyers to complete the delivery of their properties has become a risk, particularly in the cities of Brisbane, Melbourne and Perth.

According to the latest figures, Australia approved $24 billion in China real estate investment in one year from June 2015. China is the largest foreign buyer, followed by Americans who spent $7 billion to buy property in Australia.

In Australia's largest city, house prices have climbed by more than 50% since 2008, partly due to China's purchases. There is a strong demand for Australian property from China-based buyers. Chinese buyers have a lot of enthusiasm in buying properties in Australia, however, due to financial issues as mentioned above, it acts as a wake-up call which makes them not want to invest in Australia.

 

(from AFR)

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